BEARISH

So Bear Stearns, $107 last November and $30 Friday night, is being bought out at $2 a share.  This can’t be good for New York City real estate prices, but it’s the right resolution: the institution is bailed out but not its shareholders.  The financial system is defended, as it must be; but at the least possible expense to taxpayers.

The irony is that Bear had apparently had good earnings this quarter.  More than anything, it was “a run on the bank,” albeit at a higher level than the run on the Bailey Building and Loan in “It’s a Wonderful Life.”

There may be others.  But so long as the financial markets recognize that central banks will do what they need to to keep the entire system from failing up, confidence – and even its evil twin, greed – should gradually return.  (Surely some big player out there is already thinking: $2 a share . . . maybe I should have offered $3?)

It’s not nice to kick an investment bank when it’s down, but Bear has not always been as benign as the Bailey Building and Loan.  I have no doubt most of Bear’s dealings and people have been beyond reproach.  But 30-odd years ago I did a piece for New York Magazine called, “Has Bear Stearns Got a Deal for You?” (it did not), followed by a sequel in Forbes a couple of years later, when they still hadn’t stopped the practice of “special offerings” despite the glare of publicity (“Has Bear Stearns Still Got a Deal for You?” – it still did not).  This was never a firm known for its gentleness.  And, in this decade, neither its subprime borrowers nor the investors to whom those mortgages were sold, after Bear took an ample cut, may be feeling they got a great deal either.

UPDATE ON THE HOUSING BUBBLE

From the Los Angeles Times:

Southern California home prices are now 19% below their peak last year, and the surprisingly rapid decline is leading experts to predict that the  housing slump will be worse than initially thought -- surpassing the severe downturn of the 1990s.

Home values also plunged 19% during the last real estate bust, but that was over a six-year period ending in 1997. Prices have now fallen just as much in less than a year.

That trend is causing analysts to rethink their previous forecasts.

Delores A. Conway, director of USC's Casden Real Estate Economics Forecast, last fall predicted a 15% decline in home values. But now, "20% to 25% looks more likely," she says, "and that's not to say we won't see 30%."

Los Angeles economist Christopher Thornberg is even more bearish. He projects that home values will sink 40% from their peaks reached last year, double his previous estimate.

"It's the speed of the decline," said Thornberg, of Beacon Economics, a consulting firm.

Betty Palacios has no doubt that the slump is worse than originally thought. She's trying to sell her Upland condo for $140,000 -- or close to 40% less than what similar units in her complex were selling for two years ago.

Palacios, 46, said she had received only one offer, for $90,000. . . .

F We live in a fast-paced world, so maybe the decline will be swift and sharp.  Or maybe not.  There’s something to be said for spreading it out over time, giving the natural growth in the economy (population, inflation, productivity) a chance to help absorb the impact.

It’s worth noting that the bubble was a lot more distended in some places than others.  In thinking about what to do, it could be helpful to come up with a year – 2002?  2001?  2003? – that becomes a benchmark for your own thinking and around which an informal consensus might even form.  I haven’t looked at closely enough to know which year might be best; and of course all kinds of other factors would play their role in determining how the housing market fares . . . including, especially, interest rates, the state of the economy, inflation (oh, and let’s not forget supply and demand!).  Stability might be reached when appraisals retreat to more or less their early-bubble levels.  For some properties, that could be a 50% drop or even more from their peak value; for millions of others that had relatively little run-up, the bottom may not be far off.

HOW SUPERDELEGATES SHOULD VOTE

First, they should decide whether one candidate, in their view, is more likely to beat McCain than the other.  If so, that’s the one they should vote for. Period. (And, yes, into this calculus must go the factor of how the superdelegate vote itself might affect the chances of one or the other having the best chance to win in November.)  End of story. 

If they decide that the electability difference is minor or impossible to discern (or that it doesn’t matter because either will almost surely win), then they should decide whether one candidate, in their view, would do a significantly better job as President.  If so, that’s the one they should vote for.

If, finally, they think each is more or less equally electable and more or less equally likely to be an outstanding President – albeit with different strengths and story lines – then they should simply ratify the will of the voters.

If they can determine what it is. 

More on that tomorrow.